India Making a Bad Situation Worse: COVID and the Economy

Thanks to a combination of the economic chaos that preceded the pandemic, the nationwide lockdown that ran for weeks, and the insufficient financial package that followed it, estimates indicate that India’s GDP has suffered the worst contraction among all G-20 economies – losing almost a quarter of its value, annualized.

Since an economy that is locked down cannot begin to revive itself, the common sense solution would obviously be to reopen at the earliest. Yet India cannot afford to do so.

Most countries have seen their COVID-19 case curves dip or flatten in recent weeks – including the United States and Brazil. Some have seen case counts take off again in a second wave of infections. But for India, there has been no dip or flattening since the beginning of the pandemic. The curve has soared relentlessly and India is now adding far more cases each day than any country in the world – and is breaking its own records with every successive day.

The government’s response has been a crisis of miscommunication. Authorities have consistently denied community transmission of the virus. Some ruling party politicians have even publicly downplayed the threat of COVID-19 The head of the Bharatiya Janata Party (BJP) in the state of West Bengal, for instance, recently told a rally in early September that the virus is “gone.”

Now, even as the case curve climbs unabated, the government has decided to look the other way and go ahead with its reopening plans. The Taj Mahal reopened on September 21, and some schools and colleges began to reopen on the same day. India conducted two major national-level college examinations in September, despite raucous protests from students and parents who fear for their safety. The Supreme Court cleared the way for those examinations, even as the court continues to conduct its own proceedings by video conference due to the same fears.

Many people still believe that India’s situation is not too bad, considering its huge population. Yet India is now the only major country in the world with a curve that is still climbing. Owing precisely to India’s huge population, the current attitude of apathy toward the pandemic is going to prolong the economic crisis – not shorten it.

If projections hold, India will soon become the main (or only) epicenter of the virus, which means that India is now at risk of finding itself locked out of global economic flows, even as the rest of the world reopens borders. Travel in and out of India will be restricted by the rest of the world for much longer than for any other country, putting India’s massive diaspora in prolonged pain and hampering business travel.

Meanwhile, at home, as India finds it impossible to flatten its COVID-19 curve, consumption will remain tepid, as people find their future income perennially uncertain. In turn, investment spending will stay shackled, both from foreign and domestic investors. Urban migrant workers – who left for their home villages in calamitous circumstances a few months ago – will not be able to return to the cities to work, even if the economy is officially declared open, owing to a lack of confidence in the future.

All this does not even count the economic uncertainty costs of hiring a workforce that is perennially at risk of contracting the disease.

India is betting on mass vaccination before it falls too far behind the rest of the world. But experts say that mass vaccination may not happen until late 2021, even if a vaccine is approved and available by late 2020. India will therefore have to try to rein in its growing case load quickly, regardless of the progress of the vaccination effort.

The good news is that, as the rest of the world has shown, it is possible to flatten the COVID-19 curve. But this would require clearer and more honest public discussion around the threat of the virus. The government would need to communicate its plans and expectations for the months ahead, so that people brace themselves.

Yet, in recent weeks, India has struggled to do any of this. Having already imposed a strict nationwide lockdown, the government is no longer willing to communicate that the threat of the virus has only grown over time, because doing so would mean that the lockdown did not work as well as the government had promised it would. Due to fiscal constraints, the government also appears unable to provide much welfare support, which would be required if people were again cautioned to remain at home. The Modi government recently defaulted on promised payments to the state governments to compensate them for losses due to the Goods and Services Tax (GST) regime. Meanwhile, community-level health workers have been protesting due to improper remuneration and resources.

As a result, far from reinforcing the gravity of the situation in public discourse, the government now faces strong political incentives to play down the virus and encourage a reopening of the economy at all costs. In a recent address to the nation, Prime Minister Narendra Modi did not speak about the threat of a rising curve and instead focused on other peripheral issues, such as encouraging toy manufacturing and adopting Indian dog breeds as pets.

Unfortunately, even in its media discourse, India seems to have trouble confronting its own reality. In recent weeks, television news has been monopolized by an alleged scandal in Bollywood, almost as if to deliberately distract public attention away from the woes of the pandemic. At one point, media coverage and hype around the story resulted in massive crowds gathering at Mumbai airport with scant regard for social distancing requirements.

The current unstoppable spread of the virus in India is due to widespread apathy and fatigue among the public. That means that the government has to regularly communicate to the people that the threat has not yet subsided – and has, in fact, only grown in recent weeks. But instead India is already letting its guard down, and it will backfire on the economy for the long haul.